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“Genius has the fewest moving parts.”

- Larry Gagosian

Thursday Many Parts Mailbag

Q: Is Reddit doing an airdrop?

Not quite. But their novel plan to offer shares to 75,000 loyal Redditors shows that TradFi can learn from the world of crypto, where issuing tokens is as much a way to reward users as it is to raise capital.

There’s no reason why this wouldn’t work just as well with shares, although Reddit isn’t doing it quite right — they should be offering those shares for free.

Better still, those should be the only shares they offer.

Instead of selling 10% of the company to institutional shareholders at an artificially low price, why not airdrop 1% of the company to users? 

Then, do a direct listing (where existing shares simply start trading without new shares being issued) and raise capital slowly by selling into the market at an artificially high price.

If crypto is any guide, that price could be very high. (See: STRK, WLD, below.)

Investment banks would be unhappy, of course — they’d lose both the 7% fee typically charged on money raised in a conventional lPO and, more importantly, the opportunity to gift artificially cheap shares to their customers.

But a high-profile company like Reddit shouldn’t care about keeping bankers happy.

Instead, they should make their users happy with free shares — and make themselves happy with a high share price to sell into.

By offering shares at the IPO price, they risk the opposite — what if the shares trade down?

Reddit seems like the very last company that should risk making their users angry.

Q: Are STRK insiders dumping on retail?

This is the downside of raising capital via airdrops: Early buyers are likely to be paying inflated prices, which they will then complain about forever.

In the case of Starknet — which was trading at a wild $30 billion FDV when tokens were first airdropped on Tuesday — people are already complaining that insiders will be dumping on them in just two months’ time.

I think the complainers have it backward. 

For one, if you think insiders are going to sell as soon as their tokens unlock, you can simply wait two months and buy the token cheaper. Why the rush to buy on day one?

For two, liquidity events are welcome in equities — most investors won’t buy a stock until the free float hits some minimum percentage of the total (20%, maybe?), so when insiders sell a large chunk of shares in a low-float stock, it’s considered good news.

Only 7% of STRK tokens are currently in circulation, so the earlier STRK insiders can increase that number (by selling), the better.

(Late breaking news: This afternoon, the team behind Starknet succumbed to peer pressure and pushed the unlocks back. I think they’re going in the wrong direction...push them forward!)

Q: Is WLD a memecoin now?

If you liked Starknet at $30 billion FDV, you’ll love Worldcoin at $89 billion.

Today’s 40% surge in WLD has made Worldcoin the third-largest crypto by FDV — ahead of Solana even!

Note that the operative term here is “FDV” (fully diluted value): Only 1% of Worldcoin’s tokens are in circulating supply — not nearly enough to go around given the countless numbers of “investors” desperate to be long Sam Altman and OpenAI.

Sam Altman is not tradeable, of course, and Worldcoin has no affiliation with OpenAI, so there’s no reason why WLD should go up just because Sora is very impressive and AI is exciting. 

But people associate both Worldcoin and OpenAI with Sam Altman, and because Sam churlishly refuses to sell us shares in OpenAI directly (or sign up for friend.tech maybe?), buying WLD is as close as we can get to being long Sam Altman. 

Hence, WLD is now a Sam Altman memecoin with an $89 billion FDV.

Q: What would the FDV of a token issued by OpenAI be?

$1 trillion, easy.

And we’d buy it just for the meme, they wouldn’t even have to offer us a claim on profits. 

Perfect for a pseudo non-profit like OpenAI.

Q: What would a BASE token issued by Coinbase be worth?

Probably more than the COIN shares they’ve issued.

Q: Is USDe a stablecoin?

The Ethena team behind the new dollar-pegged USDe with an attention-grabbing 27% yield insists that it’s not — they want you to call it a “synthetic dollar” instead.

This is good marketing — like a used-car salesman rebranding his inventory as “pre-owned.”

(Or crypto traders re-branding themselves as “pre-rich.”) 

In the case of a used car lot, however, everyone knows that, whatever the sign says, what’s on offer is a car that’s been used.

With USDe, it’s less clear what you’re buying because what you’re buying is in the eye of the beholder.

Commodities traders are likely to see USDe as a tokenized cash and carry trade: Buy a commodity, sell futures against it, collect a delta-neutral yield.

Crypto traders will view it as a yield vault: Deposit crypto, collect a yield, don’t worry much about how or why.

Traditional investors (if any are paying attention) would call it a decentralized hedge fund: Anyone can invest, no accredited status or KYC necessary.

All of the above are correct and if these were the only ways people viewed it, I don’t think anyone could object.

But lots of people are going to view it as a stablecoin, too — how could they not when the first line of the docs describes USDe as “a crypto-native solution for money”? 

I’ve added the emphasis there because if people take them at their word and use USDe as money, its complexity could cause problems.

Cash and carry trades are not complicated, but the operational jiu-jitsu required to execute those trades is very much so — USDe’s $1 peg will face credit, counterparty, margin and exchange risk (as helpfully enumerated in the docs).

I don’t think this makes it Luna-on-ETH, as the critics on X call it, and there’s a good case to be made that USDe is an experiment worth trying.

But, for my taste, this is too much risk for a “synthetic dollar” to take.

Money should have as few moving parts as humanly possible and USDe is just the opposite — it’s a Rube Goldberg contraption of operational landmines.

That won’t matter if people only use it as a tokenized hedge fund, but it might matter if people use it as money — the biggest risk in markets and banking is when something that a lot of people thought was money turns out not to be. (See, Great Financial Crisis, It’s a Wonderful Life.)

If too many people think USDe is money, it could be a problem, no matter how clever the contraption behind it is.

― Byron Gilliam

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